How to Borrow Against a Roth IRA for Your Home
- 1). Calculate the amount you'll need to borrow. This is critical. While you cannot borrow from your IRA, there are a couple other withdrawal options. Understand that if you need more than 50 percent of the total balance in your account, you'll likely be paying early withdrawal penalties.
- 2). Roll the Roth IRA over to a standard 401(k) plan. Research different investment firms to compare programs. Make sure all potential 401(k) plans offer loan programs.
- 3). Research the rules, either online or with a representative for your IRA company, for rolling over your plan. Most have this option, but you may need to pay a transfer fee or administrative fee.
- 4). Choose a company to service your new 401(k). Make sure this plan is as beneficial or more beneficial than your current Roth IRA. You do not want to place yourself into a precarious financial situation.
- 5). Contact your IRA account servicing department to execute the rollover. Make sure you have all information pertaining to the new 401(k). You may need to do a three-way call with yourself, your old servicing company and the new 401(k) provider.
- 6). Review the rules for borrowing against your new 401(k) plan. Most 401(k) plans allow you to borrow as much as 50 percent of the balance. Applications are guaranteed to be approved as long as you have the necessary funds. These loans usually mandate a small processing fee and come with a relatively low interest rate.
- 7). Take a 401(k) loan from the new account. Make sure to select "home loan proceeds" as the reason for the loan. Apply online at your new company. You'll need to provide your income, and you may need to set up direct payments from your paycheck. Make sure the loan payment will not inhibit your ability to meet other financial obligations.
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